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Bad news for your Sipp provider may be good news for you

by Greg Kingston on Feb 15, 2013 at 10:21

Bad news for your Sipp provider may be good news for you

Many Sipp providers have felt a little gloomy of late. In December the regulator scolded Sipp providers before announcing tough new capital adequacy requirements.

But the changes proposed by the Financial Services Authority (FSA) are in fact very sensible and likely to benefit advisers.

When the FSA issued its capital adequacy paper (CP12/33) in November 2012, it was a response to a number of problems it said had been mounting among what it described as ‘small Sipp providers’.

Those included poor controls and record-keeping as well as a growing fear that Sipps were being used as vehicles to sell toxic investments.

The FSA concluded some Sipp providers will go bust, resulting in ‘significantly increased risk of harm to consumers’.

Therefore, the regulator will require Sipp providers to keep greater capital reserves, not relative to their expenditure, as is the case with many other firms, but relative to the size and riskiness of the investments the Sipp provider holds.

The effect of increased requirements

Many Sipp providers believe this is unfair. The hike impacts independent Sipp providers, as insured Sipps are not affected.

It also penalises commercial property holdings, which are listed as ‘non-standard’ assets alongside unregulated collective investment schemes. This is because the definition of ‘non-standard’ has more to do with liquidity than risk.

The likely outcome is that from 2014, Sipp providers will need to find vastly increased capital reserves just to continue operating their businesses. A firm that holds £50,000 capital today could be asked to hold over £1 million instead by 2014.

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2 comments so far. Why not have your say?

michael royde

Feb 18, 2013 at 12:54

Increased capital bad

think of those who trade from their own properties

they know about property investment

which generally provides better yields (you want to invest in gilts for your pension??)

they will have to pay higher charges for the extra capital

for who`s benefit ??

and a slowdown in growth

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Paul Boyd

Feb 27, 2013 at 16:40

When things "go wrong" clients may want to withdraw funds,tranfer to a new provider and they always want someone to blame! So its right and proper that SIPP providers have sufficient capital to cover their potential liabilities if they have to wind down or even go out of business.This avoid the situation where the firm ceases to trade and no other provider will take on their book,leaving the clients with no access to their pension investments at all! Small may be cheaper and possibly more efficient and/or flexible,but if hey cannot sort out a problem due to capital issues advisers beware,you will cop for the clients wrath,just look at the Harlequin issue now!

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